Wind Mobile's Withdrawal A Major Blow To Tories, But Verizon May Be Back

The Harper government went to war with Canada’s big wireless companies, and lost. But there may yet be time for a rematch.

That’s the message coming from many telecom experts reacting this week to the news that Wind Mobile, the likeliest candidate to become a fourth national carrier, has withdrawn from a crucial auction of wireless spectrum.

It's the Tories' goal to add a fourth major wireless player to Canada's market, a change they say will bring better prices and service to wireless customers, thanks to increased competition. It's a goal they set out in last year's throne speech.

The auction of 700 Mhz spectrum was supposed to be a major turning point for the telecom industry. This band of spectrum is considerably better than the spectrum wireless companies use now (it can penetrate better through walls, for instance) and wireless companies left out will be stuck offering lower-quality phone service.

Much to the chagrin of Big Telecom, the Tories had instituted rules for the auction designed to ensure that the Big Three — Bell, Rogers and Telus — would not be able to completely dominate the new wireless airwaves.

But with the withdrawal of Wind — and with the other two small players, Mobilicity and Public Mobile, basically out of the game — the likeliest outcome of the auction, which is expected to be wrapped up in the next several weeks, is that nothing will change.

“The move is a huge blow to the federal government’s efforts to boost competition and lower prices for consumers,” writes tech blogger and reporter Peter Nowak.

“The government is … left in an ironic position. If it allows this week’s auction to go ahead, its main accomplishment will be the strengthening of the positions of the Big Three, who will come away with more quality spectrum than they went in with.”

Extending the irony even further is the apparent fact that it was the Tories’ own rules that may have prompted Wind’s parent company, Dutch firm VimpelCom, to deny Wind the money it needs to participate in the auction.

As Nowak notes, VimpelCom wants to either own Wind Mobile outright, or have the freedom to sell it to whoever it wants. The government won’t allow an out-and-out sale of Wind, for fear it will end up in the hands of one of the Big Three. And it won’t allow VimpelCom to take full control of Wind either, Nowak says, because of the company’s ties to Russia and because Wind heavily relies on equipment made by China’s Huawei, a company some Western governments consider a national security threat.

“The feds don’t want to introduce the possibility of foreign spying through telecommunications gear, and they don’t want the industry to become even more concentrated,” writes Nowak, leaving Wind Mobile a “stranded” investment.

Internet and e-commerce law professor Michael Geist, who described Wind’s withdrawal from the spectrum as leaving the government’s strategy “in tatters,” says it’s time to start looking at other options — including greater regulation of the wireless industry.

In a blog post last year, Geist laid out some potential options for reforming the industry, among them removing all foreign ownership restrictions on wireless companies.

The government could also legislate into existence a market for “mobile virtual network operators,” or MVNOs, which are essentially resellers of wireless, Geist wrote. They don’t own spectrum or cellphone towers, but buy space on large wireless companies’ networks, and sell them at their own retail prices. The government could set wholesale rates for this market, Geist suggested.

He noted that these sorts of reforms would have been “unthinkable” a few years ago, but “as the wireless policy failures mount, the government must act boldly if it wants the Canadian market to be anything better than ‘middle average’.”

For those hoping for a fourth wireless company to arrive, there is still some hope coming out of the wireless auction.

For one thing, Wind’s departure leaves a fourth block of wireless spectrum available in Ontario, Alberta and British Columbia (assuming the Big Three grab the other three blocks in those regions, which they will; in other parts of the country, regional players like MTS and Videotron will likely snap up the fourth block).

The Globe and Mail reports Wind is still in talks with the government, and could end up buying some of that spectrum later on from other owners.

And then there’s one other possibility: The return of Verizon. The U.S. wireless giant was reported to be mulling entry into the Canadian market last summer, but ended up denying it’s interested in coming north of the border.

But Greg MacDonald, a telecom analyst with Macquarie Capital Markets, said in a client note that Verizon is still in talks with Ottawa.

“In our opinion the government is focused on attracting Verizon back to this market so investors should consider scenarios that would make this more likely,” MacDonald wrote, as quoted by the Globe.

The Globe confirmed MacDonald’s assertion, reporting that Verizon is lobbying the federal government and has had six communications with Ottawa logged in the lobbyist registry.